Not shutting down SAA will cost taxpayers: Outa

Civil society group Outa has called on government to liquidate South African Airways (SAA) instead of pouring more money into the failed airline.

Following last week’s SAA creditors meeting and reports of the dire financial situation that the airline finds itself in, the group said SAA ‘borders on a hopeless situation’ and it would be incredibly difficult to try and keep the airline afloat.

The group said that government’s actions are merely a case of kicking the can down the road, and that the costs of this add an unnecessary burden to taxpayers at a time that the country can least afford it.

“It is clear to us that the state is finding it difficult to find private partners to take up the majority shareholding.

“Outa believes the current bail-out options will become a bigger problem for the taxpayer unless the airline is liquidated and a new international carrier is licensed, with majority private sector ownership and with the state taking up not more than a 25% stake,” said Julius Kleynhans, Outa’s executive manager on Public Governance.

Outa said that a new start-up international carrier would be relatively lower in cost, with leased aircraft to take up four to five strategic intercontinental routes and possibly a few regional routes.

The group said that the government’s role should be an enabling one that stimulates competitiveness in the local market and possibly assists with partial subsidisation of some routes to stimulate tourism and business to remote areas.

“Current finance requirements of over R10 billion is required to cover debt and operations costs aimed at merely keeping SAA limping along.

“We believe a humane severance package for staff and debt settlement arrangements with current creditors should rather be sought and government should step away and liquidate SAA as soon as possible.”

Outa said that SAA’s business rescue plan requires R24.9 billion to repay debt and R2 billion to restart SAA with a 1,000 employee workforce. Approximately R16.4 billion is to be repaid over three years (mentioned in the 2020 Annual Budget), and government is trying to mobilise a further R10.5 billion to implement the R26.9 billion requirement of the business rescue plan.

“We believe these figures may be insufficient to resuscitate the airline,” Kleynhans said.

Outa says it has written to the Minister of Public Enterprises, Pravin Gordhan, to seek further clarification of the underlying assumptions of SAA’s restart business plan to determine the probability of SAA’s future sustainability and the extent to which SAA’s losses would have to rely on taxpayers funding.

“However, in the interest of time and following our own investigations and evaluations of the situation, we cannot see how this issue should continue to be drawn out in the manner conducted to date,” it said.

“Every day the state hangs on and SAA remains in limbo, millions of rands are lost to the South African economy.”

SAA will not be liquidated 

The Department of Public Enterprises (DPE) has confirmed that government will reprioritise funds to finalise the restructuring of South African Airways (SAA) and the implementation of the airline’s business rescue plan.

An announcement to this effect will be announced in the Adjustments Appropriation Bill, which will be introduced in Parliament soon, the department said in a statement on Friday afternoon (18 September).

“The national carrier will not be liquidated,” it said.  “Because the restructuring process should be brought closer to finalisation in the next few weeks, lending institutions will be requested to finance the restructuring process and honour commitments for voluntary severance packages and retrenchment. ”

At the same time, the DPE said it will continue to assess the 20 unsolicited expressions of interests from private sector funders, private equity investors and partners for a future restructured SAA.

“The DPE is sympathetic to the plight of SAA employees while continuing to work with other government departments, including the National Treasury, to make sure that the airline’s restructuring plan will be successfully implemented.

“In charting the way forward, the DPE believes the key to solving the difficulties facing SAA, is the finalisation and implementation of the business rescue process, followed by the start of a restructured airline, appointment of new non-executive directors and leadership team and securing a credible strategic equity partner who can introduce the required technical, financial, and operational expertise into the business.”

Read: Government to help fund SAA rescue

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Not shutting down SAA will cost taxpayers: Outa